Will This Overlooked Sector Continue to Dominate in 2013?

We Americans have always loved to be entertained. What’s changed is how we get that entertainment.

In our constant search for entertainment, we’re increasingly shunning the local Cineplex, concert hall or ballpark for the privacy of our own homes. Hence, the companies able to bring the entertainment to us are prospering like never before.

Whether it’s through a 52-inch flat-screen TV, a 23-inch computer screen, or a 7.1-inch iPad Mini, Americans are finding more ways of being entertained without leaving the house.

The rise of online viewing, the ever-escalating number of cable TV options, and increasing picture quality thanks to high-definition television have made curling up on the couch and watching a movie, a TV show or a sporting event more appealing than ever. Who needs the hassle of waiting in line at the movie theater, or paying outrageous prices for tickets and beer to watch an NFL game in 20-degree weather?

Staying home and watching things on your high-definition TV or computer screen is the cheaper, more comfortable, less time-consuming option.

So it’s no surprise that the companies that bring us our in-home entertainment made a killing in 2012.

Media conglomerates – diversified entertainment companies with both a television and Internet presence – were among the best-performing stocks in the market this year.

Here are four stocks of prominent in-home entertainment providers that stood out most:

Shares of this large-cap digital cable and high-speed Internet provider shattered their previous high by hitting better than $37 a share this year. Earnings shot up 57% in the third quarter (compared to the previous quarter) thanks in large part to the company’s ownership of NBCUniversal, which broadcast the London Olympics – the most-watched event in TV history. Comcast also owns Hulu, a web site that offers on-demand streaming video of movies and TV shows.

Time Warner Cable (NYSE: TWC)

Market Cap: $28.5 billion

2012 Gains: 46%

A cable and Internet provider with a bit smaller national reach than Comcast, Time Warner’s gains were nonetheless virtually on par with its larger rival this year. The company’s profits nearly doubled in the third quarter. Through just three quarters, Time Warner’s net income has almost surpassed last year’s total earnings.

Dish Network (NASDAQ: DISH)

Market Cap: $17 billion

2012 Gains: 30%

A leader in satellite television, Dish has profited from being a cheaper alternative to Comcast or Time Warner. This year’s big gains have boosted the stock to five-year highs. Take caution with this one, however: Dish’s lack of Internet presence certainly limits its growth potential when compared to its competitors. Dish is thriving now, but the shift toward online viewing – there are 500,000 fewer TV households than there were a year ago, according to Nielsen Media Research – could make this company a dinosaur in a matter of years.

Netflix was my top stock pick for 2012. Fortunately, the subscription video provider delivered with a nice 19% bounce-back after a disastrous end to 2011. It did so by steadily increasing earnings each of the last two quarters, repairing much of the damage caused by last year’s 60% price hike and ill-advised attempt at a spinoff web site. While the company’s profits were way down year-over-year, the opportunity for significant growth is clear as it expands into Latin America and Europe – adding 700,000 overseas subscribers last quarter. And as demand for streaming online video rises, Netflix is meeting that demand. International streaming revenue is expected to rise to $100 million this quarter.

So perhaps it’s not just Americans that crave in-home entertainment. On-demand video is a phenomenon that’s sweeping the globe.

Companies able to tap into that demand – particularly those with an overseas presence like Netflix – will have a leg up on their competition.

2012 was a great year for “in-home entertainment stocks.” Next year could be even better.

And as with most things these days, you can watch it all unfold from the comfort of your home.

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